10 Tips for Controlling IT Costs

Ideas for cutting costs, improving efficiency, and optimizing service delivery in the midst of never-ending budget cuts.

• By Dian Schaffhauser
• 02/01/12

In the new normal of savaged IT budgets, CIOs are cutting costs, eliminating waste, and finding ways to deliver services more efficiently than ever. Here are 10 ideas to help boost your cost-fighting powers.

1. Practice Zero-Based Budgeting
When Louise Finn joined Loyola University Maryland as CIO in 2007, she recalls having a "year of bliss." She came in right after the start of the fiscal year, the economy was still upbeat, and she had the opportunity to assess IT services against her budget without any great pressure. During her second year, she decided to take her management staff through a zero-based budgeting exercise.

This practice, she explains, requires managers to "justify every single dollar that they're asking for." In her case, she had five directors who had been in place for years. "It's a four-year private institution, so there's a certain amount of entitlement in the culture: 'This is the way we've always done it.'"

Although Finn introduced the exercise as a way to gain a better understanding about how IT money was being spent, she also saw it as a way to simplify IT's budget. "In my first meeting with my predecessor, he brought the budget with him and he had all these circles and arrows on it. He said, 'I've got some money hidden here for you,' and 'I've got some money over there,' and 'This person will start asking early...' My head was spinning."

2. Retire Marginal Systems
Loyola also looked at usage data patterns to determine which applications could be retired. The Listserv server was the most recent system that the university removed from service. According to Finn, retiring such applications saves money in software-licensing costs and in engineering time. "My server engineers are my most constrained resource, so freeing them up to do other things was really key," she explains.

3. Renegotiate Software Contracts
The last several years have been a boon for software-contract negotiations, declares Finn. Each time the IT organization has seen a budget cut, she and her managers have gone to their vendors and said, "Our budget has been cut, so that means you've got to give something to us."

With just a couple of exceptions, all the vendors came through with reductions. And even those holdouts--the university's two largest contracts--held their charges level.

For any new products or services, talks have been especially easy. "You could throw a number at a company, thinking that there's no way it's going to go for this number, and it would grab it," Finn says. "These are the companies that hit you with 15, 18, 20 percent annual maintenance contracts. They would start at a number and I'd cut it in half. They would go for it, and then I would come back again and add on some features and functionality, such as gold-level support or more seats."

4. Use a Specialty Web Service for International Transactions
Suffolk University (MA) has nearly a thousand international students who pay about $30,000 for tuition. Rather than see those students and their families waste money on lost bank fees and unfavorable foreign currency-exchange rates, the institution implemented peerTransfer Education, a web-based service that facilitates the payment process. Paula Fleck, bursar at Suffolk, estimates that the new service can shave $700 off each tuition payment.

Just as important, the service simplifies the school's work. "On the administrative side, processing international tuition payments can be troublesome, because you can't identify payments as well, and it can take a lot longer to process," says Fleck. "And by the time the money does arrive, there are a number of fees taken out."

The service, which is free to schools, also eliminates the need for IT to be involved in the systems behind those international payments. Since the service handles the reconciliation work for the school, it saves time and effort in the posting process and adds a level of security, since the school doesn't have to maintain student banking information. What's more, it took Suffolk only a week to implement the new platform.

5. Throttle Service Hours
Loyola used regular IT staff to run its help desk from 9 a.m. to 5 p.m. on weekends. But an examination of hourly statistics showed this to be wasteful overkill. Now the help desk relies on student workers and shorter weekend hours—it's open only on Sunday from noon to 4 p.m. This cutback alone has saved the help desk $35,000 annually.

6. Outsource Infrastructure Work
When Phil Peña joined Morton College (IL) in 2007 as CIO, the school had already hired a service provider to replace an in-house network crew that wasn't delivering the level of service expected by its then-president, especially during a planned transition to a new ERP system. Since then, the college has brought in a new president, promoted Peña to vice president of administration, and renewed its contract with SWC Technology Partners to handle network and server administration and deliver level-three tech support.

According to Peña, there's no disputing the high levels of service provided by the vendor, nor the cost-savings that the school enjoys. "There were seven people in the network support group," Peña explains. "That can be fairly expensive." By shifting to managed services--including a full-time onsite network employee supplied by SWC--the college spends a little more than half what it would cost to employ its own staff.

Plus, outsourcing has enabled the school to add "depth to its IT bench," Peña notes. "I can't afford to have the most up-to-date database person on staff. Those are the most expensive people around. We don't need a [full-time] Cisco security expert." When that level of expertise is required, the college works with SWC to bring one of their employees on site. "Yes, there's a slight lag in how immediately we get certain services," Peña says. On the other hand, because the college now has a 24x7 managed-service agreement, all emergencies are handled immediately, day or night.

7. Outsource Transactional Activities
We've all heard the story: Well-managed outsourcing initiatives can save institutions money, plus improve service delivery. But Pepperdine University (CA) has the numbers to prove it. Before accepting a post as CIO at the University of Georgia in 2011,Tim Chester served as CIO at Pepperdine, which typically logs about 28,000 calls a year to its help desk. A survey among students revealed concerns about the level of availability, responsiveness, and reliability of the in-house technical-support operation. When the school extended its service hours to support its overseas and evening students, the move had the unintended impact of reducing performance even further.

Searching for ways to improve tech support, Pepperdine's IT organization conducted an exercise where it compared internal service benchmarks against those that could be provided by an outside service provider. Based on the results, the university chose to proceed with an outsourcing agreement. By January 2009, the "Anytime Support Desk" was officially launched.

In the two years since, satisfaction scores have gone up, the average wait time has gone down, and the first-call resolution rate has improved by 60 percent. On the budget side, per-call costs have dropped from $24.25 to $16.88, Chester says. This has resulted in a savings of about $250,000, funds that have been reallocated to the establishment of a technology and learning center to help faculty get up to speed on the use of technology in their courses.

"We did that at Pepperdine, because there was a need for better outcomes, and that solution gave us better economies of scale," explains Chester. "Here at the University of Georgia, the context is completely different. Nobody should outsource just for outsourcing." Chester's philosophy leads to another approach for reducing costs--appropriate for U Georgia.

8. Insource, Too
Until about four years ago, departments at U Georgia all maintained their own file servers. When a new director joined the IT organization three years ago, he set about creating a common file service for the entire institution. As a result, departments started shutting down their own servers and pushing their units to the new centralized service, which was free to them.

"Central IT has provided a service that aggregates demand around better economies of scale, so people get a better service for a lower cost," Chester explains. "That's a form of outsourcing, but we're so large and so distributed that we do it internally."

Because this migration is happening through "encouragement and support"--not by fiat--the university is just now seeing the fruits of the effort: fewer servers that require day-to-day support, reduced licensing costs, and less staff time.

9. Sell Excess Capacity to Others
Cornell University (NY) has launched an on-demand research-computing service that it makes available to scientists inside and outside the institution. Red Cloud, as the service is called, is hosted by Cornell's Center for Advanced Computing. The cloud-based research service comes in two subscription flavors: "Red Cloud" is an Infrastructure as a Service (IaaS) that runs an open source version of Eucalyptus, a cloud-computing platform; "Red Cloud with MATLAB" delivers MATLAB Distributed Computing Server, MathWorks' technical computing programming environment, as software as a service.

The Center follows a cost-recovery model--users pay to keep the lights on and clusters running. Red Cloud was created to address two gaps in service: the user who needs a tiny bit of high performance computing for a long period, but doesn't want to purchase a server; and a user who needs lots of cores for a short stint. "As people buy into it, we'll grow it," says David Lifka, the center's director. "It's a sustainable model."

At the same time, the university chose to open the service up to other institutions and research centers by subscription. A single subscription, which runs from $750 to $1200, provides 8,585 core hours, roughly equivalent to the use of a single core for about a year.

"When you build to economy of scale, the more people you can get to buy into it, the healthier it is," Lifka explains. "If one or two users drop out, you don't have a big financial risk. And the more people buying into it, the more elasticity you can build into it. We're not building this gigantic stadium and hoping they'll come. We're hoping to build the right-sized room and expand as needed."

If a year passes and the Center discovers that it's "over-recovering," he adds, "we'll either lower our rates or expand the resource accordingly."

10. Shift to Leasing
First American Equipment Finance has funded a lot of iPad 1:1 programs lately. According to Chad Wiedenhofer, the company's regional vice president, a lease-based technology-refresh program offers institutions a number of advantages. "A lot of schools are looking at technology as more of a commodity and an ongoing operational expense, as opposed to a capital budget line item," he says. By leasing devices, such as student computers, schools can spread the cost out over several years. Set up properly, it can cost less than the price of buying the equipment upfront. How? Because the lease takes into account the residual value of those assets for resale once the lease is up.

Frequently, Wiedenhofer adds, colleges set the term of the lease to mesh with the manufacturer's warranty. "A lot of schools tell us that once you get outside that three- or four-year period, the indirect cost to support [the device] becomes material and can have significant impact on the overall cost of deploying that asset." In other words, aging gear costs more to keep up.

Now back to those iPads. In the higher ed space, most of American Equipment's customers are private colleges that want to operate 1:1 programs as a "marketable differentiator." According to Wiedenhofer, "Leasing can be a great way to align the cash flow and make it budget neutral, but add great value to the student experience."

As an added bonus, Apple equipment, which tends to be pricier than Windows options, tends to hold its value better than Dell, HP, or Lenovo. Whereas those Windows tablets, PCs, and netbooks might be worth 15 percent of their original value at the end of three years, Apple devices will be worth 18 to 22 percent. "The assumption of that residual value is built into the economics of the lease schedule for the school," Wiedenhofer explains.

There is a caveat, however. "Some schools are fine with keeping their technology for five, six, or seven years," says Wiedenhofer. "If that works for your institution and you're able to support those devices, then leasing is not for you."